Is the Bank of Japan really making a serious move this time? In December, it might directly push interest rates to their highest level in 28 years.

According to reports, the central bank is already preparing for its policy meeting later this month, with the core agenda being a rate hike—assuming, of course, that nothing unexpected happens in the markets. The biggest driver behind this move? Inflation data is simply too strong. As of October, core CPI has stayed above the 2% policy line for 22 consecutive months, with the latest reading at 2.3%. This kind of sustained increase hasn’t been seen since 1995.

The market now basically expects a move in December. Swap trading shows that 90% of traders are betting on a rate hike, and some institutions even predict another hike in the first quarter next year. If it really happens this time, the policy rate will jump from the current 0.25% directly to the 0.5%-0.6% range, setting a new high since 1995. The era of nearly thirty years of ultra-loose policy may be coming to an end.

The logic behind this move is actually pretty clear:

External risks are subsiding. The impact of US tariff policy is becoming clearer, and the uncertainty isn’t as intimidating as before.

Corporate profitability is holding up. In the second quarter of 2024, recurring profits for Japanese companies rose 7.8% year-over-year, marking three consecutive quarters of growth. With more money, companies are willing to give employees raises—data from the Trade Union Confederation shows that the average wage increase expected in the 2025 spring negotiations is 4.5%. If realized, this would be the third straight year of increases above 4%. Rising wages boost consumption, which in turn stabilizes inflation expectations.

But the central bank is also being very deliberate. According to insiders, the pace of subsequent rate hikes won’t be aggressive; after each move, they’ll observe the economic transmission effects. The key reference is the “neutral rate”—the central bank estimates this range to be between 1% and 2.5%. The current level of 0.25% is still far from that, so in theory, there’s room for more hikes.

From inflation resilience to corporate profits and wage growth expectations, this combination punch is quite solid. Will the December meeting really be a turning point? The answer could be revealed within the next two weeks. For the crypto market, the chain reaction from rising Japanese funding costs is definitely something to keep a close watch on.